General Insurance
Brokers
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1. Treating Customers Fairly Management Information Deadline - 31st March 2008
2. TCF – The initiative continues and intensifies
3. Deadline for implementing ICOBS Rule changes: 6th July 2008
4. Information Security
5. FSA produce “Top Tips” to RMAR completion
6. Appointed Representatives – Good Money or High Risk?
7. Systems and controls – proposal to extend the ‘common platform’
8. Cancelling your authorisation or varying your permission – 31st March deadline
9. RMAR section J reporting schedule changes – reminder
10. Retail Distribution Review – Interim report due April 2008
11. FSA priorities for small retail intermediaries (Thematic Plan) 2008/09
12. Renewals – Gathering of Demands & Needs
13. Renewals – Marketing the case
14. Commercial insurance commission disclosure
Ladies & Gentlemen
Please find enclosed the latest compliance and industry news.
As usual, sit back and enjoy!
Kind Regards
ateb consultants
Which article applies to me?
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1.
Treating Customers Fairly Management Information Deadline - 31st March 2008
You should have appropriate management information or measures in place by the end of March 2008 to test whether your firm is treating your customers fairly.
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2.
TCF – The initiative continues and intensifies
Recently, ATEB attended a seminar held by the APCC (Association of Professional Compliance Consultants) and representatives of the FSA were present. The topics covered included Financial Crime and TCF.
During our discussions on TCF, it was again emphasised by the FSA the absolute necessity of all member firms to implement their own TCF protocol. This subject is not going to disappear as other initiatives have done; it is very much an ongoing issue and one which the FSA will be pursuing aggressively.
It was again made clear that the FSA expects every member to have moved significantly on this issue. Two Assessment Teams have been created in the FSA and, as we mentioned in our December 2007 Newsletter, they will be contacting members shortly (by phone or face to face) for a conversation of up to 1 hour with, for example, the Compliance Function. Thereafter, up to 25% of these firms will be visited.
So - Have you set up your TCF systems based on the 6 Outcomes?
- Have you included the key drivers of Leadership, Strategy, Decision Making, Controls, Recruitment & T&C, and Reward?
- Can you show evidence of Delivery?
- Have you, eg, issued a questionnaire/survey to clients?
- If so, what have you done with the results?
- Do you regularly produce KPIs relevant to TCF?
- If so, what do you do with them?
| Ateb view: |
TCF is a culture thing and embraces every aspect of your business. Don’t be caught out by the FSA:
- It’s good for your firm and
- It’s good for your clients
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| Action required by you: |
| Be prepared for a visit or a telephone call. If you would like ATEB to help you prepare, then simply let us know by email or telephone. |
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3.
Deadline for implementing ICOBS Rule changes: 6th July 2008
The new Insurance Conduct of Business sourcebook (ICOBS) was published on the 6 January 2008. They focus on the high level outcome of protecting consumers, and less on specific and detailed rules. Key impact areas are:
General insurance products:
- Some detailed rules on communications with clients, claims handling and excessive charges to retail customers have been removed.
PPI and pure protection contracts (term, income protection and critical illness insurance):
- Firms must explain orally to customers in non-advised sales that the customer is solely responsible for deciding whether the policy is suitable for their needs.
- Firms must tell customers orally about the main characteristics of a policy (significant benefits, limits and exclusions, duration and price) during sales conversations, in a way that does not overload the consumer, before the customer makes any decision on a purchase.
The FSA have also added rules for PPI, in areas such as eligibility checks, improved oral disclosure and longer cancellation periods.
| Ateb view: |
Although, this will mean more flexibility for firms, the FSA will require that the same high standards of conduct remain. The FSA have put a great “spin” on their principle based regulation, however it worries ATEB greatly because, in our view and possibly cynically, it’s the FSA’s method of opting out. The fact remains, the FSA cannot cope with the current complexities of the rules. We suggest keeping a copy of the old detailed rules close to hand because it’s these rules that one day they may try to hang you with! |
| Action required by you: |
All firms selling general insurance products will need to understand and comply with the new requirements in order to ensure they are treating their customers fairly. ATEB is updating its web based manual to cater for the changes and hope to have the revised sections posted within the next few weeks.
Policy statement reporting on the main issues from or consultation and detailing the new rules: www.fsa.gov.uk/pages/Library/Policy/Policy/2007/07_24.shtml |
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4.
Information Security
The FSA sees arrangements for information security as falling under Principle 3 – “A firm must take reasonable care to organise its affairs responsibly and effectively, with adequate risk management systems.” Additionally, there is the risk that data may be used for financial crime.
We would therefore urge firms to consider the following:
Have you appointed an Information Security Officer within your firm?
- Are you confident that anyone processing personal data in your firm is complying with the eight enforceable principles of good practice?
- Are your clients made aware of the identity of the data user or users and any uses to which personal data will be put and any proposed disclosure of data to third parties?
- Are you confident that all staff maintain utmost confidentiality of any information acquired by members of the firm regarding clients, potential clients, or records kept?
- When giving information to a client, particularly by telephone, do your processes provide that the client’s identity is verified?
- Are you confident that your records are correct and kept up-to-date, bearing in mind that third parties (such as the FSA, Ombudsman or Courts) may need to inspect them?
- Do you understand ‘Subject Access Requests’ and how to deal with them?
- Do you maintain an up to date ‘Suppression List’?
- Are you confident that all members of staff are vigilant enough to make sure that confidential data is not seen by unauthorised persons?
- Have all staff been adequately trained on information security procedures?
Obviously you need to answer ‘yes’ to all the above !
| Ateb view: |
This forms part of TCF and we expect the subject of ‘information security’ to become more talked about in coming months. |
| Action required by you: |
We have updated Section 4 of the ATEB web based manual to cover these areas. We suggest that you log on and download the latest version. You can then circulate to staff, decide gaps and implement a policy. The Information Commissioner’s Office (ICO) has a wide range of information, guidance and training media for firms. The ICO can be contacted as follows:
Website: www.ico.gov.uk
e mail: mail@ico.gsi.gov.uk
Helpline: 01625 545745 |
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5.
FSA produce “Top Tips” to RMAR completion
The FSA are still concerned that many firms still do not complete their RMARs correctly. (Wonder if Northern Rock falls into that category?). The FSA have, therefore, put together a guide that highlights areas that small firms have most problems with and have made this available on their website.
| Ateb view: |
Overall, I think the guide tends to answer questions that we already know the answers to, rather like the RMAR help text. Also, interesting that the guide currently contradicts ATEB’s understanding of completion of section I. We will, therefore, need to go back to the FSA and confirm which answer is correct - the one they gave us 2 years ago or this one! |
| Action required by you: |
Notwithstanding the above, we would still recommend that you read through this document which can be found at:
http://www.fsa.gov.uk/pages/Doing/Regulated/Returns/IRR/pdf/RMAR_AppendixH.pdf
Also of interest will be:
http://www.fsa.gov.uk/pages/Doing/Regulated/Firms/help/rmar/index.shtml
You can also access a facility for calculating additional capital requirements due to higher excesses on your policy. |
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6.
Appointed Representatives – Good Money or High Risk?
If you have an appointed representative (AR) firm that makes sales on your behalf, you should be aware that you remain responsible (as their principal) for the sales they make and the advice they give. It is essential that firms with ARs have good monitoring and controls to ensure their
ARs are meeting FSA requirements and are treating customers fairly.
A recent FSA project, which looked at mortgage, investment and general insurance firms (mainly small, but with some larger firms as well), highlighted some poor practice.
The FSA noted the following key problems which posed a real risk to consumers.
- Over recruitment
- Lack of ongoing monitoring of products sold and advice given
A ‘free for all’ is great for business, but not so great if you get a visit from the FSA. The issues uncovered can be summed up as inadequate control by principal firms over their ARs.
Don’t forget the March and December TCF deadlines the FSA have set for all firms include ARs as well as directly authorised firms. Certainly, firms that don’t make this deadline can expect the intensity of the FSA supervision and enforcement action to increase.
| Ateb view: |
It may be worth thinking carefully about income splits with your ARs. This needs to be sufficient to allow adequate resource to be allocated to your ARs and this, in our opinion, is the main reason for the problems now faced by principal firms. |
| Action required by you: |
All principal firms should be acutely aware of the poor practice the FSA has found and ensure that their firm’s appointed representatives are treating their customers fairly.
To help, the FSA have an updated factsheet available on their website.
www.fsa.gov.uk/Pages/Doing/small_firms/general/appointed_reps/index.shtml |
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7.
Systems and controls – proposal to extend the ‘common platform’
OK, let’s start with the FSA jargon ‘common platform’. In line with their move to principles-based regulation, the FSA are proposing to create one common set of very high-level provisions (i.e. a ‘common platform’) for all firms, which can be applied flexibly and proportionately.
Introducing the ‘common platform’ will mean all small retail firms having to comply with the same chapters 4 to 10 of the FSA Senior Management Arrangements, Systems and Controls (SYSC) sourcebook. Personal Investment firms, Insurance Intermediaries and Mortgage Brokers are currently subject to chapters 2 & 3. (The exception to this would be investment firms subject to the recent MiFID legislation already have to adhere to chapters 4 to 10). The proposals will also remove the need to meet the requirements in SYSC chapters 2 and 3.
SYSC sets out the responsibilities of directors and senior management of regulated firms. It builds on the third of our Principles for Businesses: “a firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems”.
The changes will bring in some new requirements for firms in the areas of outsourcing and managing conflicts of interest – but apart from these, firms that comply with their existing provisions in SYSC 2 and 3 now, the FSA have said, will not need to change their behaviour when moving to the ‘common platform’.
| Ateb view: |
| At this stage, we feel that it will not affect most small firms too greatly; although any significant differences will be highlighted and included within our web based Compliance Manual. |
| Action required by you: |
The consultation will close on March 19 and the FSA plans to publish a feedback statement in the third quarter of 2008, with a view to implementing the proposals, if confirmed, on October 1, 2008. SYSC Consultation Paper:
www.fsa.gov.uk/pages/library/policy/CP/2007/07_23.shtml |
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8.
Cancelling your authorisation or varying your permission – 31st March deadline
If you want to cancel your authorisation or vary your permission before the next annual fees are due, you must apply to do so before 31 March to avoid paying full annual fees for 2008/09.
If you apply after 31 March, full annual fees will be payable as there are no pro-rata arrangements or refunds of fees.
The FSA have stated that cancellation applications received after 31 March will only be approved if you have received and paid your annual fee invoice.
| Ateb view: |
None - for information only. |
| Action required by you: |
Speak to ATEB or the FSA if you are unsure – the clock is ticking. |
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9.
RMAR section J reporting schedule changes – reminder
Is your accounting reference date between 1 February and 31 August inclusive?
If ‘yes’, you should note the changes to the reporting schedule for section J set out in the FSA consultation paper CP07/17.
Since the introduction of the RMAR, the FSA have used the data collected electronically from section J to calculate the fees and levies payable by firms in respect of the FSA, the Financial Ombudsman Service (FOS) and the Financial Services Compensation Scheme (FSCS).
The FSA feel that the current schedule is difficult to follow and they have dealt with a high number of queries from firms asking them to clarify the correct reporting date.
They are proposing that all firms with an ARD between 1 February and 31 August (inclusive) will no longer be required to complete section J in their half-year-end return, and, instead, must complete section J in their year-end return; so all firms submit fees data on their year-end return.
| Ateb view: |
If you do not send the right figures you will risk at least a fine. |
| Action required by you: |
Click on : http://www.fsa.gov.uk/pubs/cp/cp07_17.pdf and go to page 41 of 172 and double check Table 4.2: Reporting schedule for section J on RMAR |
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10.
Retail Distribution Review – Interim report due April 2008
The FSA are going through all the responses they have received, and will publish an interim report in April 2008, with a full feedback statement in October.
| Ateb view: |
Let’s hope that common sense prevails! |
| Action required by you: |
None - for information only |
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11.
FSA priorities for small retail intermediaries (Thematic Plan) 2008/09
The FSA have highlighted the following areas as priorities for 2008
- Quality of advice processes
Still widespread significant weaknesses in financial advisers and mortgage brokers
FSA will focus attention on those firms operating in the retail sector.
- Controls over Appointed Representatives (ARs)
Principal firms do not have adequate controls in place.
Focus on firms that specialise in advising on ‘right to buy’ property
FSA will be checking application of new ICOBS requirements.
Focus will be on “transfers”
Follow up of findings of exploratory work last year
FSA looking to assess the systems and controls within mortgage firms
Firms that continue to submit poor returns will be subject to closer supervision.
| Ateb view: |
No doubt the above are likely to be main topics for discussion over coming months. |
| Action required by you: |
If you feel that you may have gaps in the above areas or would like to discuss any of the above areas, let us know. |
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12.
Renewals – Gathering of Demands & Needs
There is little distinction in the FSA rules between new business and renewals. Strictly speaking, therefore, brokers are under an obligation to collect up-to-date information about the client (their demands & needs) at new business stage and at renewal. Generally (although nor always!), there is good evidence of this taking place at new business, with client information being collected in one form or another. It is at renewal where the greater issue lies.
While for medium to large commercial cases, where business is often carried out on a face-to-face basis, this does not pose a problem. It is for small, personal lines business and smaller commercial cases where the potential issue arises, with most renewals being transacted by post.
Over the last year or so, we have seen some very good practice being adopted by brokers to cater for this problem. What they have done is build an internal ‘Client Demands and Needs’ document, to all intents and purposes a client fact find. It appears in many guises – ‘fact find’, ‘demands & needs questionnaire’, ‘renewal summary’, etc. The document records the client’s most recent demands and needs, as recorded by the firm, and forms the basis for the renewal recommendation.
At renewal, this document is sent to the client as part of the renewal pack. The client is clearly told that the renewal is based on the client’s demands and needs, as recorded in this document, and that they must check the document to ensure that it reflects their current demands and needs and is up to date in all respects. If there are inaccuracies or if their requirements have changed in any way, they are clearly instructed to contact the broker.
Some brokers are also recording the last time the demands and needs were updated and if this has not happened for some considerable time, they are making contact with the client.
| Ateb view: |
Although we have yet to experience the FSA’s feedback on the renewal process, it is difficult to see what more can be done by brokers for smaller cases where margins do not support face-to-face or telephone transactions. |
| Action required by you: |
Brokers must be aware of this issue and, if they have not already done so, they must adapt processes and systems accordingly. Discuss with ATEB if you feel you have gaps. |
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13.
Renewals – Marketing the case
Independent general insurance brokers are under an obligation (FSA rule) to undertake a ‘fair analysis of the market’. As we discussed in the previous article, the FSA makes little distinction between new business and renewal.
Brokers are therefore required to ensure that all recommendations are based on this fair analysis of the market, including renewals. This is often referred to as ‘going to the market’, ‘undertaking a marketing exercise’ or simply ‘re-broking’. This is not an issue for larger commercial business which is easily marketed. Neither is it generally an issue for personal lines cases where online quotes are available (even if they are not always used!).
The problem arises primarily for smaller commercial cases because:
- there is generally no online quoting system
- marketing would involve submitting cases to different insurers and this is done too often, insurers become irritated if the business is not placed with them
- there is generally insufficient margin in this type of business to market the case each year
- the broker generally ‘knows’ what is available in the market
So, what can brokers do? Examples of good practice in this respect are:
- record on file checklists, whether an alternative quote has been sought and, if not, explain why not
- design a process or procedure so that there is a methodology behind the decision to re-broke (or not); this may involve triggers such as recent experiences with the current insurer, number of years since case was last marketed, similar new business cases with lower premiums, etc
- record when a case was last marketed – this is a good TCF key performance indicator!
Additionally, where alternative quotes are sought and the resulting premium is cheaper than with the existing insurer, but for various reasons the broker recommends renewal with the existing insurer, the reasons should be recorded. Again, it would be good practice to have a process or procedure to follow.
| Ateb view: |
This is a difficult problem and one we feel the FSA does not fully appreciate. We believe that you are, however, under a TCF obligation to consider these issues carefully. |
| Action required by you: |
Consider this issue carefully and review/implement procedures as necessary. Discuss with ATEB if you feel you have gaps. |
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14.
Commercial insurance commission disclosure
Will or won’t they enforce commission disclosure? - From day one of FSA regulation this question has been on every General Insurance Broker’s lips.
Currently, commercial insurance brokers do not have to disclose to their clients how much commission they are paid unless they are asked. It now appears they have decided to do some more work on commercial insurance commission disclosure.
An independent firm conducted research on behalf of the FSA last year and concluded that making firms disclose their commission was not, on its own, justified on cost-benefit grounds.
The FSA say that they continue to have wider concerns about market inefficiencies, but they are not totally specific in what these inefficiencies are or whether they even exist.
They plan further work before taking a view on commission disclosure.
| Ateb view: |
| Some may say that this is the FSA’s hidden agenda. Who are we to disagree? I wonder how often they have to ask the question before they get the answer they want. |
| Action required by you: |
| None for the moment, but watch this space! |
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Important Note:
The ATEB Newsletter is intended to provide general guidance on areas of compliance and T&C; however it is not a replacement for the main Rules and Guidance contained within the FSA Handbook.
We welcome all feedback. If you have any feedback or questions relating to any articles then please direct them to your local ATEB consultant or the newsletter editor Steve Bailey email steve@atebconsulting.co.uk
Unless you have consulted specifically (as part of a regular visit) with ATEB on a particular issue then ATEB Consulting accept no liability for any actions taken based on the information contained solely within the newsletter. |
Contact Us:
Ateb Consulting
The Old Post House
29 Nedderton Village
Northumberland
NE22 6AX
T: (01670) 822984
M: (07703) 576951
E: steve@atebconsulting.co.uk
W: www.atebconsulting.co.uk
